How bankers on less than £100k are playing the London housing market

The London housing market is a feverish thing. In the past year, prices in the City have risen 18% to an average of £363k ($609k). In the most up-and-coming boroughs (eg. Brixton and Hackney) house prices have risen faster still, and in the most desirable areas (Kensington, Notting Hill), prices are far higher. A one-bedroom flat in Notting Hill can easily cost you more than £1m, for example.

The over-heating housing market is a challenge for the new crop of 20-something bankers. Many work long hours and need to live close to the City or to Canary Wharf. However, house prices in popular boroughs close-by are prohibitively high - even if you're earning close to six figures. In the circumstances, 20-something financial services professionals say they're opting for an age-old solution: lodgers.

Young bankers looking for lodgers

"It's become a real trend," says Adam, a private equity professional working in London's West End. "People in finance have started buying properties and renting out a room or two while they live there. It makes sense - rental yields are so high in London right now that you can pretty much pay your mortgage using the other person's rent money."

"A lot of my peers are buying themselves a two or three bedroom property and renting a room out," confirms Sajid, a second year analyst working for an international bank in Canary Wharf. "I'm planning to go down that route, but I haven't got enough for the deposit yet."

A few boroughs are particularly appealing to the bankers-looking-for-lodgers. Adam says places like Bethnal Green, Dalston, Haggerston, Shoreditch and Stoke Newington are among the more popular. "These are places where houses are still affordable if you have a lodger - if you want to live in South Kensington or Notting Hill, it's impossible to buy anything at all," he says.

Sajid says he's looking for a property worth up to £350k. The ideal tenants are seen as other, younger, bankers, or professionals working long hour:. "You want someone in a demanding long-hours role so that they're not around too often and there's minimal chance of clashing in the bathroom."

Bankers renting to bankers

The lodger phenomenon marks a break from the past. Pre-2008, cash bonuses in banking were higher and London house prices were lower. Consequently, it was usual for people working in finance to buy several properties and to rent them out whilst not actually living there themselves.

"Seven years ago, it was quite common for people who were working in finance and living in a one-bedroom flat to receive a big bonus. They'd use that to buy a two bedroom flat, which they'd move into whilst renting out the one-bedroom flat," says Neil Chegwidden, director of residential research at Jones Lang LaSalle. "That's definitely become a lot less common than it used to be."

Vivek Jeswani, a 38-year-old risk professional at China Construction Bank, is among the older breed of landlords. "I have two properties that I rent out and I purchased both of them as places for myself to live," he tells us. "I haven't come across people renting out rooms - but that's probably a factor of my generation." Most of Jeswani's tenants are younger bankers: "I've had people who work at HSBC, BNP Paribas and RBS," he says.

Diversification into the housing market makes sense when you work in finance

Mark, a 30-something equities banker who worked at several leading US banks before moving to a fund company, says that he has "a few properties" that he rents out in London.

"It makes sense," he tells us. "If you're working in finance you're very ill-advised to keep too much of your net worth in stock. If the markets tank you're going to be pretty f-ed. You'll lose value on any bonuses that are tied up in stock and you may also lose your job. It makes total sense to diversify into property."

He says his colleagues in banking have been known to go for, "some of the most exotic mortgage structures I've ever seen." Multi-currency mortgages are popular, for example. "Some of the simplest involve people who are working at American banks getting dollar mortgages," says Mark. "Even though they're paid in sterling their compensation is denominated in dollars and the last thing you want is pound debt and a dollar melt. It's all about neutralizing your exposure."